How to Deal with Money Without Your Parents Knowing
The Money Talk
If you're reading this, there's a good chance you are a few steps away from making a very bad decision. However, you could also be only a few steps away from financial independence and peace of mind.
I'm not here to judge, but I do love you. Sort of. So, the first step for a young person trying to somewhat break away from their parents' watchful eye is to think long and hard about why you want to do such a thing.
Really want to buy a PS4 without your parent's permission? Trying to get a Western Sky loan to finance Spring Break? You might not be in the right place.
However, if you are looking to make some very intelligent money decisions at a young age (such as investing non-taxed income responsibly, opening a long-term CD/money market account to help finance college loans, or building your credit), I may have a few tips and tricks to help along the way.
So, follow these steps and you'll be fine:
2. Think some more
7. Think some more
8. Consult trusted friends or intelligent adults
10. Act (Slowly and with a plan)
11. Tell your parents in 28 years
Which of the Six is motivating you?
Warnings Before You Invest
As far as I'm concerned, there are only about five or six very meaningful financial moves that a young person can make while still under their parents' financial rule. These include:
-Setting up a "better" bank account
-Short term investments (CDs, money markets, etc.)
-Long term stock investing
-"Very Necessary" financial choices
If you're considering something outside of these six, I would have serious second, third, and fourth thoughts about it (and would even recommend sending me a message asking about it?). On the other hand, you may have a much greater understanding of the financial world than myself, and, if that is the case, again, you are probably on the wrong page.
But! If one of those six sounds like something you would like to accomplish, please keep reading.
Best Bank for a Student
Oftentimes, parents can be stuck in their financial ways and be unwilling to see the benefits that switching to a new bank (or even holding accounts at multiple banks) can have. This is a solid reason for going behind a parent's back and is often the first step in progressing with any of the other five financial tasks.
The first argument for switching to a new bank is that it is highly unlikely that your parents' bank is offering you the best deal in every category: customer service, checking, savings, etc. Though highly respected names like Wells Fargo, Bank of America, and BB&T are respected for a good reason, they often cannot compete with "online banks" who have been offering lower fees and better rates since the mid-90s. These banks do not have to pay for the brick-and-mortar presence of the big guys and these savings are (surprisingly) passed down to the account holders themselves.
Thus, it makes sense to the informed bank account holder (which may not describe your parents) that holding accounts at multiple banks would be very beneficial.
So, setting up such a bank account is easy. Research which online bank can offer you the best rate (and may I suggest looking at banks who offer ABSOLUTELY zero account maintenance fees, minimums to open, etc.). Then, open an account with these steps:
2. Send in proper information and identification (because of your young age, most banks/brokers will require a good deal of identification such as a copy of your Driver's License, S.S. card, Proof of Address like a student bill, and tax information)
3. Acquire cash (see the next section of the article) or find an excuse for transferring money away from your parent-monitored checking account. If cash isn't an option (normally the case with online banks), "purchasing textbooks with a new store" is normally a good excuse or wait until you receive a check of some sort to directly mail in/hand in to your new bank. Transferring money should probably be your last resort.
4. Slowly build up the money in your checking account until it reaches the level you are looking for.
5. YOU MUST make sure that you switch all information over to electronic. EVERYTHING: statements, forms, updates, offers, everything. Obviously, nothing should come to your house about your semi-secret account.
Tax-free Cash for Students
The linchpin of your entire financial independence plan will probably be your ability to turn your bank account statements and savings account dollars into cold, hard cash. Cash is impossible for your parents to trace and can be easily turned into the funding needed for all six branches of a student's financial potential.
If you work a babysitting, lawn-care, or other cash-only job, you are very lucky indeed! There are many other jobs like this such as collecting scrap metal, minor home repair, and minor sales on a site like eBay. These are good options for some people and can provide the *non-taxable*, untraceable income that your financial aspirations will be fueled by for now.
If none of these options are available to you, you can simply save up the cash/checks you receive from birthdays and holidays as your main source of funding. Or you could always use a discreet method of cash withdrawal:
-Most grocery stores offer a "cash back" option when using a debit card which can discreetly move money from your account into your hands
-Paying for a close friend's dinner or shopping with your debit card while they pay you back in cash is another option
Short Term Investments for Students
Certificates of Deposit and Money Market accounts are two very good options for students with large amounts of money (normally at least $5000) who are looking to invest for the short term (normally between 9 months and 2 years).
Now, I am not here to explain either process to you (my smart friends at other very smart websites have done that already). Both are solid strategies for saving your tuition money on a short term basis.
However, I can give you some advice about the two:
-It takes at least a few thousand dollars for a bank to offer a CD (anything less wouldn't make a noticeable profit anyway)
-CDs are very low-risk as long as the bank offering them is well respected
-Reaching into your CD before it has reached maturity normally brings a penalty of at least the interest earned
-Money markets offer a limited number of withdrawals, so you must be extra careful. Money markets are not a replacement for a checking account.
Long Term Stock Investing for Students
Here's the fun part. Stocks are by far the coolest, most exciting part of finance for young people. Historically, they offer the greatest returns on investment and, potentially, the largest meltdowns and life-ruining debts of any part of the financial world. Fun, right?
Well, yes. If you feel that you have caught the "Trading bug" and can no longer repress the thousands of stock terms you've spent hours memorizing and the brokerage companies you have compared over and over, this may be the right time to step into the stock trading pool. But never in the deep end! Save that for your mid-life crisis.
Setting up an online brokerage account is fairly easy and slightly time-consuming. It takes a few weeks to process your information, but most brokers are trustworthy and helpful over the phone, online, and in person if possible.
But, the first step is finding the right online brokerage service. Prominent examples include E-trade, Scottrade, TD Ameritrade, Zeeco, and many more. No two brokerage firms are ever very much alike, so it pays to do tons of research. (And you should probably save the high-end brokers like Charles Schwab and Vanguard for your later 20s)
My preference? TD Ameritrade. Is it because of their low prices? No. They are somewhat more expensive than places like Scottrade and Zeeco on a per-trade basis.
However, TD has something that the other brokers simply cannot offer: simulated trading. Because TD Ameritrade owns the thinkorswim trading platform, any account holder can simulate stock trading with $100,000 of virtual money through a program called PaperMoney. This is the only true way to learn the stock market. I currently have $0 in my TD account, but I have been using thinkorswim for months to learn the ropes.
TD's customer service is also very good and they have hundreds of locations in the U.S. Speaking of hundreds, they also have the most commission free ETFs of any brokers. These ETFs are low-risk stock indexes that are known for being good long term investments for beginners.
So, in a nutshell, my advice is to go with virtual trading since only larger amounts of money are worth investing in the exciting stocks while ETFs and mutual funds are a better option for students.
Credit Building for Students
Credit building can be a little awkward for young people. Because, in order to build you credit, you need credit to begin with. And, the most common way to raise credit is by cosigning on a loan or credit card with guess who? Your parents.
There is a way around this though. If you already have a checking account with a bank (such as Wells Fargo), they will be much more trusting of your credit card application and will most likely accept you into a credit program (after you prove you are an enrolled student). Again, make sure EVERYTHING is electronic and ship your card to school not home. They will obviously use your account as collateral, but that's okay because you're going to pay off the bill at the end of every month...right? That's how building credit with credit cards works: repaying all the micro-loans the bank gives you until you leave a paper trail of trustworthiness.
Necessary Spending and Social Giving
Finally, the most interesting categories.
These two will both branch off from creating your own bank account, credit card, and cash flow.
After you secure those things, you can now give to that inspiring Kiva/Kickstarter campaign that you've had your eye on for so long or finally raise some money to start that babysitting business at school. Social/philanthropic giving is a beautiful thing that people of all ages should go after. But, if your mother is anything like mine, she may be always on your back about saving money and not giving to the poor yet. If that doesn't sit well with you, you can try the above sections for ideas on how to free up YOUR money for giving.
Going behind your parents' back for a new business venture created in your dorm room is risky, especially if you're furnishing your own capital. However, if you believe in yourself and spend enough days, weeks, and months thinking over your idea, you should go for it! Just follow the above instructions on how to free up the nontaxable money and how to establish enough credit to get into the business world.